In response to concerns about potential exposure of a private foundation and its manager to the tax under §4944(a) if it makes an investment this not a program related investment (PRI) but which would still further its charitable purposes the IRS issued Notice 2015-62. 

A tax is imposed both on a private foundation and an investment manager if the foundation makes an investment that jeopardizes the carrying out of any of its exempt purposes.

Sometimes there are hardships that may make it difficult for a taxpayer to file certain reports electronically even where such filing is required.  In Revenue Procedure 2015-47 the IRS has issued guidance on requesting such a hardship waiver for plan administrators that are required to file Forms 5500-EZ (Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan) and/or Form 8955-SSA (Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits).

If the tax law provides for an application for special treatment to be made in such time and manner as the IRS may require, can a taxpayer make the application if the IRS hasn’t gotten around to writing any regulations or provided other guidance on the subject?  This was the issue addressed by Chief Counsel Memorandum 201537021.

The open transaction doctrine, if applicable to a case (and that’s a really big if), provides that a taxpayer generally treats amounts received as a return of capital until the taxpayer’s basis has been entirely recovered.  Unfortunately for the taxpayers in the case of Friedman v. Commissioner, TC Memo 2015-177, the Tax Court did not find their situation to be one where that doctrine applied.

In Revenue Procedure 2015-44 the IRS has officially terminated the Appeals arbitration program that was currently running with Revenue Procedure 2006-44.  The program was mandated by Congress in IRC §7123(b)(2) where Congress ordered the IRS to establish a pilot program for arbirtration.

The Tax Court decided, at least for purposes of filing a petition with the Tax Court, that a federal “snow day” declared in the District of Columbia that falls on the last day for filing with the Court serves to push the due date back to the first day the office of the clerk of the Tax Court was open.  The issue was decided in an order filed in the case of Guralnik v. Commissioner, Docket No. 4358-15 L, Order dated August 24, 2015.

Deductibility of legal expenses is always a tricky issue for tax purposes.  In the situation described in Private Letter Ruling 201536006 the litigation involved a potential infringement on a patent, with a key issue being whether the legal fees incurred represented a capitalizable payment in defense of title to the patent or an ordinary and necessary business expense arising from a dispute over whether there had been an infringement on the patent.

In Private Letter Ruling 201536005 the IRS granted an executrix, who was also the surviving spouse of the decedent,  the right to make a late portability election under IRC §2010.  By making that election, the estate of the surviving spouse will be able to take into account the decedent’s deceased spousal unused exclusion amount (DSUE).

Taxpayers were again beaten back in an attempt to broadly define a “capital asset” and a “sale of a capital asset” in order to gain access to the preferential capital gain tax rates in the case of Patrick v. Commissioner, 142 TC No. 5, affirmed on appeal by the Seventh Circuit Court of Appeals, Case No. 14-2190.

In this case the taxpayers were looking to get capital gain treatment for an amount they received as a reward for, effectively, turning in the husband’s employer through a qui tam complaint filed under the False Claims Act.

In Legal Advice Issued by Field Attorneys 20152201F the IRS conclude disclosures related to a gift were inadequate on the gift tax return that was filed by the taxpayer.  That is important because, under IRC §6501(c)(9) if there is inadequate disclosure of a gift on a gift tax return the statute of limitations stays open indefinitely.

By repossessing a personal residence the taxpayer had sold by taking an installment note, the taxpayer ended up losing access to the IRC §121 $500,000 exclusion of gain on the sale of a principal residence in the case of Debough v. Commissioner, 141 TC No. 17, affd CA8, 2015 TNT 168-11, No. 14-3036.

The case deals with the interplay of IRC §121 (the exclusion for the gain on the sale of a qualifying residence) and IRC §1038 (a provision that is meant to offer relief when a taxpayer repossesses real property).  Effectively the Tax Court concluded that IRC §1038’s provisions trump the relief provision of IRC §121 in this fact pattern.

Taxpayers operating a trade or business are authorized to deduct partially worthless bad debts under Internal Revenue Code §166(a)(2). But to do so the taxpayers must be able to show that they are writing off a debt that already has gone bad, rather than simply reserving against a potentially bad debt in the future.

The IRS has issued proposed regulations (REG-109813-11) on which taxpayers may rely for new tax years that would allow additional days to count toward establishing bona fide residency for certain taxpayers in a U.S. territory.

Those qualifying as a bona fide resident of the following U.S. territories under IRC §937 are treated differently under a number of tax provisions:

• Guam
• American Samoa
• The Northern Mariana Islands
• Puerto Rico
• The Virgin Islands [IRC §937(a)]

The IRS has issued temporary regulations dealing with allocation of W-2 wages for purposes of the domestic production activities deduction (DPAD) of IRC §199, along with proposed regulations dealing with that topic along with other issues related to DPAD.   The temporary regulations are found in TD 9731 while the proposed regulations were released in REG-136459-09.